The weekend just passed has seen more signs of what you might call big trouble in little Greece. This is symbolised this morning by the fact that the Athens Stock Exchange remains closed. After all Greece has passed two rounds of legislation at the behest and request of its creditor overlords and in return received just over 7 billion Euros from the European Union emergency fund and seen its banks bolstered by 1.8 billion Euros of ELA (Emergency Liquidity Assistance) from the European Central Bank (ECB). So it would not be unreasonable to expect service as normal and for the stock market to re-open. We are told it might be tomorrow according to Reuters.
“It’s certain that it will not open on Monday, maybe on Tuesday,” a spokesperson for the Athens Stock Exchange told Reuters on condition of anonymity.
So that is definitely maybe with apologies to Oasis.
The scale of the Greek depression
This subject has been documented by me many times but I think that it is getting a wider airing around the mainstream media. I note that Project Syndicate were beating the drum on Friday.
By March 2012, however, reality had set in. With GDP headed to 12% below 2010 levels, a second program was put in place. By the end of the year, GDP had fallen to 17% below 2010 levels. Greece’s GDP is now 25% below its 2009 level. And while some predict a recovery in 2016, I fail to see how any analysis of demand flows can justify that forecast.
So there you have it a contraction of 25% caused by a group of people who claimed that the alternative would collapse the economy! They should be in court, but in an era of rewards for failure one of them now heads the IMF (International Monetary Fund). For newer readers 2012 has been picked out because that was the year according to what was called the troika and is now called the institutions that things could only get better.
If we look for comparisons then Greece is now in a worse situation than the United States was in at a comparable time in the Great Depression which began in 1929. Will there be an equivalent of The Grapes Of Wrath? The reason for the difference is that the United States saw a steep fall followed by a recovery. Where Greece is still falling. From Macropolis.
IOBE think-tank sees recession of up to 2.5 pct this year, milder in 2016
This is a version of the never-ending story as in April they were hopeful of some growth of up to 1%. So we have an estimate of the price of the current crisis. But returning to the central theme we see that the contraction and the depression goes on with the apparent improvement in 2014 now sadly a distant dream. Those who pushed the Grecovery theme must be embarrassed and ashamed.
Interestingly Project Syndicate gave an estimate of what the opportunity cost not defaulting and devaluing has been.
Using Iceland as our measuring stick, the cost to Greece of not exiting the eurozone is equivalent to 75% of a year’s GDP – and counting.
The current situation
You might think that such a disastrous situation would put pressure on both sides to proceed rapidly on Greek bailout take three or 3.0. However according to the Financial Times the institutions are already accusing Greece of back-sliding.
“This, at present, is the big, fat, issue,” said one official involved in the talks. “They do not want to understand that there will be yet another significant package of ‘prior actions’ before any disbursement. They already have implementation fatigue after two mini-bills.”
Thus it would appear that the involvement of the nine members of the European Union who are not Euro members has “only just begun” as the Carpenters put it.
But officials said the differences remained so significant that they could require the EU to agree another €5bn bridging loan so that talks could continue into the autumn.
We are back to a situation where the EFSM is required because we have an “emergency” to be replaced by the Euro ESM which can only distribute funds if there is not an emergency. On what a tangled web and all that.
There are so many contradictions here and let me present another from a regular contributor on such matters which is Benoit Coeure of the ECB.
“the question is not whether to restructure Greek debt but what so do it for it to be truly useful to the economy “
Yes a representative of the same ECB which has insisted on full repayment on all of the Greek bonds it holds and is the major reason (3.7 billion Euros on August 20th) why more bridge financing seems now likely. Lord make me virtuous but not yet seems to be the theme for this!
What about the banks?
As ever they are at the heart of the matter. This morning has seen the official confirmation of the 8.1 billion Euro fall in Greek bank deposits that Mario Draghi told us about at the last ECB Press Conference albeit that it was rounded up to 8.2 billion. In response the ECB seems to have settled on throwing another 900 million Euros of ELA into the mix every now and then.
This of course is no way to run a banking system as we wonder how the credit supply from the Greek banks has been affected or not to put too fine a point on it, if there is one. My late father regularly used to complain that in UK recessions his business not only found it difficult to get new credit but saw existing lines reduced or withdrawn. Imaging the effect of such moves should Greek bankers prove to be like British ones! How much will they be lending in the environment described below by Kathimerini?
Greek banks are set to keep broad cash controls in place for months, until fresh money arrives from Europe and with it a sweeping restructuring, officials believe.
“The banks are in deep freeze but the economy is getting weaker,” said one official, pointing to a steady rise in loans that are not being repaid.
Sadly it remains a downwards spiral as weaker banks create a weaker economy which creates weaker banks and repeat.
There has been much press attention about the Plan B that was being at least considered by the recently deposed Finance Minister Yanis Varoufakis. Well I suppose that puts him ahead of England’s rugby team! But more seriously it would have been remiss of him not to have had a plan B and in many respects his apparent rejection of Grexit means that it did not go far enough in my opinion. Also some aspects seem to have come out of a James Bond movie plot. From Kathimerini.
Is it true they had planned to raid the National Mint and that they prepared for a parallel currency by hacking the tax registration numbers of the taxpayers?
Also this bit seems rather contradictory from someone who claims not to be considering Grexit.
but at the drop of a hat it could be converted to a new drachma
At the drop of who’s hat Yanis?
This is now like an anti-morality play where both parties desperately cling to something they know will fail as they wait for an opportunity to blame the other side for the failure. Meanwhile the economy heads south with only the occasional glimmer like some hopes for tourism income.
As the UK’s contribution to the EFSM rises you might like to know how we record the liability. Below is the reply I received when I asked.
EFSM only affect borrowing (EU conts) if Greece default.